Real Estate

Real Estate Appraiser

In recent years there has been criticism of the real estate appraisal industry, and some deservedly so, but appraisal is a critical function of lending because it establishes the value of collateral. For many decades this function was handled by human appraisers but in recent years computer generated valuations have come into being. Known as “AVMs” or “Automated Valuation Models” these are property valuations computed using sophisticated equations or ratios combined with public information on the physical characteristics of a home and recent sales.

I have personally tested the value conclusions of one AVM and found that the sales data was inaccurate and the conclusion way out of line with the current market. But that was only one AVM and others may be more accurate than this, but not according to many other authors. There has been plenty written by human appraisers about AVMs so I will cover them mostly as a means to understand what’s been happening in appraisal for years now.

The rationale for the invention and widespread use of AVMs was lower cost and greater speed that a traditional human generated appraisal. This is reasonable provided that the AVM product does indeed deliver this. There is no question that AVMs are much faster.

They generate a report in a matter of seconds. But as in every other form of computation, the old axiom of “garbage in garbage out” applies and the sales information used by AVMs is often scattered or unreliable to the point that such data was never be acceptable if used in a human generated report, which is held to a much higher standard of reporting and accountability. The most likely use for an AVM would be for a recently built home in a neighborhood where there is a high degree of similarity among the homes there, along with a large number of recent sales available to the AVM. Read the rest of this entry »